2q06 presentation
TRANSCRIPT
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Second Quarter 2006Earnings Conference Call
Investor Relations Contact:Gustavo [email protected]
2Q06 Earnings Conference CallSão Paulo August 8, 200612PM (Brasilia Time), 11AM (US-ET)Phone: +1 (973) 582-2734Code: 7617321Webcast: http://www.gafisa.com.br/ir
Second Quarter 2006 Launches
Belle Vue – Porto Alegre Paço das Águas – São Paulo Vistta Ibirapuera – São Paulo Beach Park Living - Fortaleza
Blue Land – Rio de Janeiro
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Well Defined Strategy
Create the leading residential development company in Brazil based upon sales, profitability and quality
Strong revenue growth
Focus on high return
opportunities
Maintain debt policy of
40% - 60% net debt / equity
Continued geographic expansion
Our Strategy
Maintain land bank of
2-3 years of future sales
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Highlights
Launches increased 151% y-o-yLaunches increased to R$ 274.2 million in 2Q06 from R$ 109.1 million in 2Q05
Pre-Sales grew 168% y-o-yPre-sales increased to R$228.8 million in 2Q06 from R$85.3 million in 2Q05
Record-level Backlog Margin of 43.3% vs 33.1% in 2Q05Backlog of Revenues rose to R$560.7 million in 2Q06 from R$382.2 million in 2Q05
Revenues Increase 47.5% to R$ 152,5 million and Adjusted EPS up 600% to 0.21
S&P raised Gafisa’s credit ratings to BBB+ from BBBS&P have revised Gafisa’s outlook to positive
We strengthened our nationwide presence with three new partnerships in strategic markets, Alagoas, Rio Grande do Sul e Bahia.
Mortgage availability by commercial banks increased 104% in the end June of this year.
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Gafisa Reports 151% Growth in Launches and 168% in Pre-Sales
39
15412
58
35
16
2Q05 2Q06
New MarketsRio de JaneiroSão Paulo
44
134
11
46
54
94
2Q05 2Q06
New MarketsRio de JaneiroSao Paulo
Pre-Sales (R$ mm)
Pre-sales mix breakdown – 2Q06
Launches (R$ mm)
HIG – High Income: > 3,600 MHI – Middle High: 2,800 < > 3,600MID – Middle Income: 2,000 < > 2,800 AEL – Affordable entry level: 1,800 < > 2,000 COM – Commercial LOT – Urbanized lots
Segmentation (Prices in R$/sq.m)
274
109 85
229
168%168%
22%
47%
22% HIG
MHI
MID
AEL
LOT
COM
151%151%
69%
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Growth Prospects of São Paulo Market
Core Market – Metropolitan Area of São Paulo
6% of Brazilian population and 10% of Brazilian GDP
São Paulo also presents one of the highest GDP per capita in Brazil
(72% higher than Brazilian average)
Over 4 million homes (approximately 8% of total homes in Brazil)
Opportunities in the metropolitan area:
The metropolitan area of Sao Paulo presents several opportunities
on the residential segment, specifically in the middle income
bracket
Despite the lower demand for luxury housing, we see some
opportunities for innovative and differentiated projects
As for the low income, we observe a huge unmet demand due to
lack of a regulatory framework
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Growth Prospects in Rio de Janeiro
Core Market - Rio de Janeiro State
3% of Brazilian population and 5% of Brazilian GDP
Rio de Janeiro also presents one of the highest GDP per capita in
Brazil (38% higher than Brazilian average)
Almost 2 million homes (approximately 4% of total homes in Brazil)
Launching of 2 billion per year
Opportunities:
Projects oriented to middle and high-income in Barra da Tijuca and
Jacarepaguá, fastest-growing region in the city
Looking for sites to develop units with prices around R$150,000
Diversifying around suburban areas of Rio de Janeiro State
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Well Defined Strategy
Develop local partnerships to leverage regional market knowledge,
legal skills, risk mitigation and entry barriers by reducing the time
for local approvals
Search new market regions that provide a sustainable growth to our
operations (growing income per capita, population growth, i.e.)
Multiple drivers of other markets mitigate growth risk
Business Owners Organizational Structure provide a totally focused
local management integrated and supported by Gafisa Corporate
Unit in SP
How Gafisa is differentiated in Developing Markets?
Strength of its brand and its track record in São Paulo and Rio de
Janeiro
Innovative project concepts
Differentiated project designs
Delivery of products on time and demand-aligned payment
conditions
Aggressive marketing strategy
Growth Prospects in New Markets
Recently signed partnerships
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Rapidly Expanding Mortgage Supply
Mortgage AvailabilityR$ billion
Sources: ABECIP, Central Bank. ¹ Total mortgage lending using savings deposits funding (channeled-lending requirement).
Santander offer 20-year fixed rate mortgage
Gafisa, HSBC and Santander offer pre-approved mortgages
CEF expects to channel R$10.3 billion to the housing sector using funds from FGTS/FAT
Bradesco plans to triple mortgage lending activity this year to nearly R$2 billion. Itaúexpects to lend R$1.4 billion in 2006
The term was up to 20 years from 15 years last year
ABECIP raises commercial banks lending estimates to R$10 billion from R$7 billion bringing total financing (including CEF) to more than R$20 billion
Central Bank may allow paycheck discount for mortgage lending
Central Bank may allow Commercial Bank to lend at fixed rate using funds from Savings accounts
2,2 3,04,8
10,0
2,04,1
4,5
6,0
9,1
10,3
2,9
5,3
2003 2004 2005 2006E 1H05 1H06
Mortgage by Commercial Banks¹ CEF Mortgage Loans
104%
83%
13%
109%
20,3
13,9
9,0
6,7
4,9
9,4
Recent Developments
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Land Bank representing 2-3 years of future sales
Potential Units by Income Segment
Land Bank
São Paulo
Rio deJaneiro
OtherCities
Total
%
Land Bank
846
604
638
2,089
Future Sales(R$ mm)
67%
90%
92%
84%
%acquiredby swapHigh Middle Lots &
Com
336
1,032
444
1,812
23%
2,118
1,080
2,115
5,313
68%
8
418
270
696
9%
AEL
-
-
-
-
0%
São Paulo
Rio de Janeiro
12
2,8
21,1
14%
3%
2Q05 2Q06
Adj. Net Income Net Margin
Operating Highlights
33,2
39,5
32%26%
2Q05 2Q06Gross Profit Gross Margin
15,319,1
13%15%
2Q05 2Q06
Adj. EBITDA EBITDA Margin
Net Revenues (R$ mm) Gross Profit (R$ mm)
Adj. EBITDA (R$ mm) Adj. Net Income (R$ mm)
103,4
152,5
2Q05 2Q06Net Revenues
48%48% 19%19%
25%25%
661%661%
13
15
4251
2027
9
34
12%12%
4%6%
4%
12%
8%
2001 2002 2003 2004 2005 1H05 1H06¹
Adj. Net Income Net Margin
Operating Highlights
67
114142
124 139
68 75
32%
26%28%
27%
32%34%
34%
2001 2002 2003 2004 2005 1H05 1H06
Gross Profit Gross Margin
26
64
8466 65
36 38
19% 19%
14% 13%
17%
14%13%
2001 2002 2003 2004 2005 1H05 1H06¹
Adj. EBITDA EBITDA Margin
Net Revenues (R$ mm) Gross Profit (R$ mm)
EBITDA (R$ mm) Net Income (R$ mm)
197
334440 436
494
212285
2001 2002 2003 2004 2005 1H05 1H06
34%
9.6%
8%
265%
¹ Adjusted EBITDA ¹ Adjusted Net Income
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Despite the strong results in pre-sales, we’re still recognizing previous years revenues
Launched in 2006
Launched in 2005
Launched in 2004
Launched in 2003
Launched in 2002
Others
Developments Pre-Sales
143,699
48,347
16,557
13,832
6,436
na
Pre-sales x Recognized revenues (R$000)
% of Pre-Sales
63%
21%
7%
6%
3%
na
16,042
44,542
33,951
36,963
8,240
12,809
Revenues % of Revenues
11%
29%
22%
24%
5%
8%
152,547 100%Total
84%
59%
228,870 100%
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Strong Pre-sales performance will positively impact future earnings
… with margins record high margins of 43.3%
Currently, Gafisa has approximately R$243 million of results to be recognized (a 91% growth compared to 2Q05)…
2Q05(a)
1Q06(b)
Revenues and Results be Recognized (R$ mm) Backlog Margin (%)
Sales to be Recognized
Costs of Units Soldto be Recognized 1
Results to beRecognized
Margin to beRecognized
473,4
(278,9)
194,5
41.1%
383,2
126,9
33.1%
Note:1 Includes only land and construction costs
(256,3)
2Q06 (c)
560,7
(317,8)
242,8
43.3%
(c)/(b)%
18%
14%
25%
(c)/(a)%
46%
24%
91%
33,1%
41,1%43,3%
2Q05 1Q06 2Q06
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Strong Financial Position…
Short Term DebtLong Term Debt Total Debt
Cash and Cash Equivalents Net Debt (Net Cash)Shareholder’s Equity
Total Capitalization
(R$ million) 2Q06
85191276
423(147)806
1,082
1Q06
86199285
481(196)788
1,073
…coupled with focus on working capital management
Net Debt/ Equity -18% -25%
2Q05
38102140
11921321
461
7%
In order to optimize its working capital, Gafisa has been demanding new product from banks:
Gafisa and Banco HSBC offer pre-approved mortgage in Santo Andre (Sao Paulo)
Gafisa and Banco Santander Banespa Launches No-paperwork mortgage in Rio de Janeiro
Gafisa and Banco Santander Banespa offer mortgage with discount on rent during construction period
More recently, Gafisa’s Board approved a R$100 million securitization of Receivables from clients
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Our Goals for 2006
► Launching growth guidance for 2006 of 25-28% in nominal currency terms
► EBITDA margin for FY06 of 16-17% (as % of Net Revenues)
Continued Growth Pace
Margin Expansion
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Gafisa: Premier Growth Opportunity
Professional Managementand
Established Organization
Industry Leadership and Strong Brand Recognition
GeographicDiversification
World-class Shareholdersand the Highest Standards of Corporate Governance
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“Safe-Harbor” Statement
We make forward-looking statements that are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of our management, and on information currently available to us. Forward-looking statements include statements regarding our intent, belief or current expectations or that of our directors or executive officers.
Forward-looking statements also include information concerning our possible or assumed future results of operations, as well as statements preceded by, followed by, or that include the words ''believes,'' ''may,'' ''will,'' ''continues,'' ''expects,'‘ ''anticipates,'' ''intends,'' ''plans,'' ''estimates'' or similar expressions. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur. Our future results and shareholder values may differ materially from those expressed in or suggested by these forward-looking statements. Many of the factors that will determine these results and values are beyond our ability to control or predict.